Demographics and the aging of the baby boomers is the most important issues that looms for the financial advice industry.

Roughly $30 trillion in assets would be transferred to their Gen X and millennial children by the biggest and wealthiest generation in U.S. history over the next several decades. And most of those children will promptly fire their parents’ advisors if studies are to be believed to be accurate.

“Studies regularly show that when wealth passes to another generation, in the majority of cases, the heirs change financial advisors. The relationship between assets, asset owners and financial advisors is unraveling before our eyes,” said Gauthier Vincent, head of Deloitte’s U.S. Wealth Management practice.

The future success or failure of advisory firms would be dependent on how such firms deal with this long-term trend. The strengths of some business models will become more apparent and the weaknesses of others more glaring as the ‘great wealth transfer’ accelerates since the oldest boomers are now 70 years old.

“This is a fascinating time from a competitive perspective. There’s going to be winners and losers, and market shares will shift,” said Vincent.

“This industry will be very fluid in the next decade,” he added.

It’s been easy to put addressing this huge but slowly unfolding issue on hold for an industry that has largely earned its bread serving affluent clients — and avoiding smaller, unprofitable ones.

“It’s a question of revenue today versus revenue tomorrow. Incumbent players are not by nature nimble and willing to take risk,” said Kendra Thompson, North American lead at Accenture Wealth Management Services.

And the inertia is well reasoned. The future of the industry could be next-generation clients with fewer assets and they won’t pay the bills today. This fact is acknowledged by every advisor. It takes a lot of people and demands new technologies and service models in trying to attract and engage them costs money.

“Is it the right thing to do?” asked Peter Mallouk, CEO of registered investment advisor Creative Planning.

“Yes — but you have to be willing to not be profitable with the mass affluent,” he said.

“The majority of the industry is not designed to think generationally. Economically, it’s not worth it,” he added.

One of the largest and fastest-growing RIAs in the country, Mallouk and his firm have a leg up on most advisors. They offer the high-touch, full-service financial-planning relationships that are most likely to retain assets through generations, successfully recruit young advisors to the firm and their clients are generally high in net worth. The norm of this firm is involving the children of clients in financial-planning discussions, Mallouk said.

“There’s a perception in the industry that to be successful, you can only work with people who have at least $1 million in assets. But if you don’t work with the next generation, someone else will,” he said.

Engaging all family members of the firm’s ultrahigh-net-worth clients is the focus of Daisy Medici, managing director of governance and education at GenSpring Family Offices. Working with next-gen clients is an essential part of what a family office does and the parents in those families expect it.

“We attract families that worry about the impact of wealth on the next generations. They come to us because we’re known for bringing multiple generations of families to the table,” said Medici.

(Adapted from CNBC)

Categories: Economy & Finance, Uncategorized